States want FRBM limit raised to 4%

CMs seek relaxation in state fiscal deficit limit to deal with additional spending, revenue fall due to Covid-19. Under the fiscal responsibility and budget management (FRBM) act, the states are mandated to keep their fiscal deficit under 3% of their respective gross state domestic product (GSDP).

ET Bureau|

Last Updated: Apr 02, 2020, 11.42 PM IST

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New Delhi: States have sought relaxation in their fiscal deficit limit by as much as 1-4% of their respective gross state domestic product (GSDP) to deal with the additional spending and sudden fall in revenue on account of the Covid-19 outbreak.

The issue was raised by the chief ministers during a video conference with Prime Minister Narendra Modi on Thursday. Under the fiscal responsibility and budget management (FRBM) act, the states are mandated to keep their fiscal deficit under 3% of their respective gross state domestic product (GSDP).

“Bihar raised the issue of raising the FRBM limit to 4%, ’’said state deputy chief minister Sushil Modi. Some other states have also made similar requests, said a government official.

Kerala has also raised the issue with the centre. “The centre should allow 1% relaxation in the FRBM limit,’’said Kerala finance minister Thomas Issac. One percentage point relaxation can yield over Rs 1.6 lakh crore to states to meet the Covid-19 contingency.

The centre had relaxed the limit to 3.5% of GSDP for FY20, but states now want higher relaxation in the limit for FY21. West Bengal finance minister Amit Mitra has written to union finance minister Nirmala Sitharaman pitching for withdrawal from consolidation sinking fund that states are mandated to maintain with the RBI.

This fund can be accessed in case of emergencies. “You will appreciate that the present situation in the country qualifies for being more than an emergent situation,’’ Mitra said asking Sitharaman to allow withdrawal.